29 January, 2012

FED: INTEREST RATE SHOULD STAY LOW UNTIL END OF 2014

By Martin Crutsinger

Associated Press

WASHINGTON -- The Federal Reserve signaled Wednesday that a full economic recovery could take nearly three more years, and it went further than ever to assure consumers and businesses that they will be able to borrow cheaply well into the future.

The central bank said it would probably not increase its benchmark interest rate until late 2014 at the earliest -- a year and a half later than it had previously said.

The new timetable showed the Fed is concerned that the recovery remains stubbornly slow. But it also thinks inflation will stay tame enough for rates to remain at record lows without igniting price increases.

Chairman Ben Bernanke cautioned that late 2014 is merely its "best guess." The Fed can shift that plan if the economic picture changes. But he cast doubt on whether that would be necessary.

"Unless there is a substantial strengthening of the economy in the near term, it's a pretty good guess we will be keeping rates low for some time," he said.

The Fed has kept its key rate at a record low near zero for about three years. Its new time frame suggests the rate will stay there for roughly an additional three years.

The bank's tepid outlook also suggests it's prepared to do more to help the economy. One possibility is a third bond-buying program that would seek to further drive down rates on mortgages and other loans to embolden consumers and businesses to borrow and spend more.

In a statement after a two-day policy meeting, the Fed said it stands ready to adjust its "holdings as appropriate to promote a stronger economic recovery in the context of price stability."

Treasury yields fell after the midday announcement. But yields stopped falling after the bank later issued forecasts for the economy and interest rates. They showed that while some members foresee super-low rates beyond 2014, six of the 17 members forecast a rate increase as early as this year or next.

It was the first time the Fed had released interest-rate forecasts from its committee members. It will now do so four times a year, when it also updates its economic outlook.

The rate forecasts are an effort to provide more explicit clues about the Fed's plans. They also coincide with a broader Fed effort to make its communications with the public more open.

Lower yields on bonds tend to encourage investors to shift money into stocks, which can boost wealth and spur more spending.

Stocks, which had traded lower before the Fed's announcement, quickly recovered their losses. The Dow Jones industrial average closed at 12,756.96, its highest close in more than eight months.

Some economists said the new late-2014 target may foreshadow further Fed action to try to invigorate the economy.

Julie Coronado, an economist at BNP Paribas, said she thought the Fed was indicating that it will step up its purchases of bonds and other assets if economic growth fails to accelerate -- even if it doesn't slow.

That is a "very low bar indeed," she wrote in a note to clients.

Other analysts fear that the Fed's longer-term timetable for a rate increase could hamstring it, even though Bernanke stressed the Fed's ability to adjust rates as it sees fit.

Dana Saporta, an economist at Credit Suisse, worried that the much-longer timetable would compromise the Fed's credibility if it must raise rates sooner because of unexpectedly strong growth and inflation.

"It's striking that the Fed would make an implicit commitment for almost three years," Saporta said. "It seems like an awfully long time to make such a statement. Given that no one knows what will happen ... the (Fed) may eventually regret this."

The central bank slightly reduced its outlook for growth this year, from as much as 2.9 percent forecast in November down to 2.7 percent. For the first time, the Fed provided an official target for inflation -- 2 percent -- in a statement of its long-term policy goals.

The bank sees unemployment falling as low as 8.2 percent this year, better than its earlier forecast of 8.5 percent. December's unemployment rate was 8.5 percent.

Those rates are still far higher than normal. The Fed didn't set a formal target for unemployment, but it said a rate between 5.2 and 6 percent would be consistent with a healthy economy.

Bernanke noted that the Fed expects only moderate growth over the next year. He pointed to the persistently depressed housing market and continued tight credit for many consumers and companies.

But for now, the American economy is looking a little better. Companies are hiring more, the stock market is rising, factories are busy and more people are buying cars. Even the home market is showing slight gains after three dismal years.

Subscribe To My Blog

Total Pageviews

About Me

I have been a real estate
broker since 1994, serving the communities of Palo Alto, Menlo Park, Atherton,
Woodside and Los Altos. Having lived in the community for over twenty years, I
am intimately acquainted and professionally engaged with the area I serve -
from neighborhoods, schools, parks and activities to local building codes and
regulations governing historic properties and tree preservation.

I take pride in providing unsurpassed
personalized service, with dedication and discretion to my clients to help them
achieve their objectives when selling or buying a home. I listen carefully and
get to know you and understand your needs and goals. Drawing on my in-depth
knowledge of the market, I work with you to achieve your goals faster and
easier.

Selling and buying a home is a complex
transaction that requires attention to detail and careful execution. My
experience, resources and the strategy that I fostered through the years in the
real estate industry provide me the knowledge and expertise that you need
throughout the entire s process to sell your home at the highest price possible.
I stay on top of every aspect of the transaction – so that you don’t have to!

My unwavering commitment to achieving my
client’s goals is the motivating force behind my work. I use the latest
innovations and marketing techniques to achieve a positive and successful
experience.

Local News and Events

Testimonials

We are grateful that you have handled our real estate transactions; it is comfortable to know that everything will be handled with much attention to details and professionalism. We appreciate your work and look forward to working with you again! Nicole T.

I am really, really happy with how the sale process has gone. If you had told me a month ago that we'd have a sale contract in hand at the price our home sold at, I would not have believed it. Thanks for all the hard work that you have put on our behalf. Pat F.

We appreciate all of your help this year so, so much. We could not be happier with the way everything has turned out and we are so pleased that our old house sold so quickly without having to do all the necessary work to list it on MLS.